Companies & Industries

Africa: Go Early, Stay Long

Construction work at the site of the planned Grand Ethiopian Renaissance Dam near Assosa, Ethiopia.

It’s the most populous landlocked country in the world, with a population of more than 91 million. But its economy, with a nominal GDP of about $41 billion, is not much larger than Wyoming’s (population around 577,000).

The largest hydroelectric power plant in Africa is under construction there, signaling that boom times lie ahead.

And in some minds the boom times already are here. According to the International Monetary Fund, the economy averaged 10% annual growth from 2004 through 2009, slowing to 8% in 2010, 7.5% in 2011, and 7% in 2012. Some place the figures higher.

One of the reasons for the recent slowdown is diversity: There isn’t much. The economy is dominated by agriculture, which accounts for about 40% of GDP, 80% of exports, and eight of every 10 jobs.

The country is Ethiopia: one of the poorest in the world. Like most of the countries in Africa, however, we need to look at Ethiopia in terms of its potential, rather than its accomplishments. And there the story gets brighter.

Known as the “water tower” of eastern Africa, Ethiopia is home to 14 major rivers, including the Blue Nile. It has the greatest water reserves on the continent. And its leading cash crops, including corn and coffee, always seem to be in demand.

Just think what Ethiopia might be able to accomplish if it could harness the power of its rivers to produce electricity. This is not pie-in-the-sky: the multi-billion-dollar Grand Renaissance Dam is currently under construction.

The country is experiencing a mini investment boom, as well. According to the news site, allafrica.com, it now ranks number two, after South Africa, in foreign direct investment.

Still, as The Economist points out, investing there “is not for the faint-hearted.” Not surprisingly, the country ranks way down toward the bottom in the Wall Street Journal’s “Index of Economic Freedom.” Cronyism is a way of life.

Ethiopia is just one example of a story that’s unfolding in Africa. We’re starting to see the same dynamic in Africa that we’ve been seeing elsewhere, as poverty-ridden families that were barely able to scratch out a subsistence living a few years ago are becoming first-generation consumers.

Indeed, we’re also starting to see the rise of an African middle class. Looking at the continent as a whole, Boston Consulting Group projects an increase in the middle class from 172 million in 2011 to 233 million by 2017. This will encourage further foreign investment, which will segue in the years ahead from infrastructure to consumer goods.

Hyundai (005380:KS), for example, already is making such a play. Once nearly absent from the continent, Hyundai has made it clear that it wants to become the leading auto brand in Africa. Its strategy is simple: “all in.” It already has surpassed Toyota in five countries – Algeria, Angola, Egypt, Morocco and South Africa – representing 70 percent of the market.

As my colleague David Michael noted recently in The National Interest, Africa’s greatest asset is its people: more than 1.1 billion of them, 60 percent of whom are under 35 years of age. These workers and consumers, Michael points out, “highly value American products and are among the most brand-loyal customers anywhere in the world. If you win them over today, they might stay with you for life.”

That’s the message for corporate America. By the year 2020, the African market will be worth well over $1 trillion. If you want to be part of it, you need to go early and plan to stay long.